How Luxury Has Survived the Economic Downturn

When the recession hit in 2007, the majority of economists and retail commentators predicted that the luxury retail market would not fare well, but five years on it has not only survived, but prospered. Only last month Burberry Group posted a 24 per cent surge in its 2011 profits and Richemont (the third largest luxury group and owner of Cartier) posted a sharp increase in sales of €2.62bn.

When the recession hit in 2007, the majority of economists and retail commentators predicted that the luxury retail market would not fare well, but five years on it has not only survived, but prospered. Only last month Burberry Group posted a 24 per cent surge in its 2011 profits and Richemont (the third largest luxury group and owner of Cartier) posted a sharp increase in sales of €2.62bn.

But how is the luxury sector booming when not only consumer spending is low but the retail sector has seen a wave of companies go into administration and is in general decline. There are a number of reasons but the simple answer comes down to two points: changing consumer spending habits and a buoyance of wealth overseas.

As the Financial Times has reported, there are still a number of high net worth consumers that have cash to spend. They are spending their money on a number of luxuries - such as houses, cars but also in the luxury goods market. The 'hyper-wealthy' are still cash rich and are coming from stable economies in the Asia-Pacific region and Middle East. It has been from these economies that reports of a new 'travelling luxury consumer' has emerged; wealthy individuals from Asia, Middle East and BRIC countries coming to the stalwart shopping Capitals in the UK and USA to flex their cash in our luxury stores. It is these consumers that have not only invested into our own economies but are responsible for keeping the luxury goods market alive. It is cheaper, and sometimes tax free to shop overseas, and I am sure we will see another influx of the 'travelling luxury consumer' into London during the Olympics.

But it cannot just be the high-net consumer that is spending its money into the luxury retail market. I believe the recession has spearheaded a change to consumer spending habits - and it is the middle classes that are redirecting their cash into the luxury goods market. They realise that investing into a product that is benchmarked for its quality and longevity is more commercially sensible than spending on cheaper, imitation items. I believe this is partly the reason why some middle-market retailers, including Tesco and M&S, have struggled in the last year. Consumers are either looking for a complete bargain (which explains the prominence of retailers such as Aldi and Poundland) or a product that will last a lifetime and is an investment, even if it is at a higher price point. I have certainly seen this trend through my own business Gift-Library.com. We specialize in luxury gifts for any price point and we have seen our customers spend more money, but on less items in the last year. The consumer seems to want to buy a product that is durable and is in a classic style, where the value will be amassed over a longer period.

I am confident that the luxury goods market will continue to prosper. Consumer habits have changed and we will see luxury brands starting to invest in emerging economies such as China and Brazil. In the UK we need to make sure we continue to

allow our home grown brands, such as Burberry, to continue to expand and that our country continues to be attractive to the 'travelling luxury consumer'.

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